FTC is preparing lawsuit to block Tapestry’s purchase of Capri

US antitrust enforcers are preparing a lawsuit seeking to block fashion company Tapestry Inc.’s $8.5 billion planned takeover of Capri Holdings Ltd., according to a person with knowledge of the matter.

The Federal Trade Commission is expected to file a lawsuit as soon as Monday, according to the person, who asked not to be named discussing a private matter.

Tapestry had no immediate comment on the expected suit.

If successful, the suit could scuttle the creation of a US-based luxury conglomerate to compete with the big European fashion companies. Tapestry sells leather products and other luxury goods under the Coach, Kate Spade and Stuart Weitzman brands, while Capri controls high-end labels Michael Kors, Versace and Jimmy Choo. 

Capri’s stock price has fallen over the past several trading sessions based on perceived negative comments last week from FTC officials about how they define market share, Bloomberg News reported April 15. That sent the gap between where Capri is trading and Tapestry’s $57-per-share takeover bid to nearly the widest level since the merger was announced in August.

Wednesday morning, shares of Capri fell 2.3% before US markets opened, while Tapestry’s shares rose 1.4%

The FTC’s concerns stem from the tie-up of two major players in the mid-tier or accessible luxury handbags market. Their competition in outlet markets has raised concerns at the agency, given what the person said was evidence of tit-for-tat discounting among some of the brands.

Tapestry remains undaunted. Before the news about the FTC move, first reported by the New York Times, Chief Executive Officer Joanne Crevoiserat had reiterated that she expects the company to complete the deal in this calendar year. 

“We know that given the landscape, it just takes time to work through the issues,” she said in an interview with Bloomberg on Monday, adding that Tapestry doesn’t plan to shed brands to complete the acquisition. “We don’t think that it’s necessary.”

The combined companies would be the fourth-largest luxury company in the world and second-largest in the Americas after LVMH, according to research firm GlobalData. That had already attracted regulatory scrutiny, and had traders increasingly concerned that the FTC might act to block the deal.

The FTC’s move comes after the European Union unconditionally approved the deal on April 15, according to a filing on its website.